Participants at Detail Business Series offer market-focused views on Nigeria’s Forex crisis
Speaking at the Annual Detail Business Series yesterday organised by Detail Commercial Solicitors in Lagos, Bismarck Rewane, managing director, Financial Derivatives Co. said that the volatility of the exchange rate, has direct impact on various sectors of the economy; with several losses incurred in the process. A critical example he noted was the aviation sector where a delay in the repatriation of funds has led to the exit of some foreign airlines and reduction in number of flights.
Identifying the exchange rate as the most important factor price in Nigeria, Rewane stated that the financial services have seen an increase in NPLs especially for banks exposed to oil & gas and manufacturing (average NPLs is 11.7% and prudential limit is 5.0%), adding that some banks such as Zenith, GTBank and Access have recorded higher profits due to Forex translation gains.
He listed some risks of Forex instability to include decline in oil prices, reduced oil production, depletion of external reserves (where it falls below $25 billion and vulnerability to external shocks and global recession).
“If policies are consistent in future, Nigeria is likely to improve its trade, Rewane said optimistically.
Supporting this stance, while speaking on regulations, policies and government interventions, the host of the event and Lead Partner, Detail Commercial Solicitor, Ayuli Jemide, underscored the need for consistent regulatory policies that would ensure efficient business practices in the country. According to him, intervention funds no longer served the purpose for which they were created.
He said, “The reality is that businesses should thrive based on the principles of demand and supply. In the past, intervention funds have been given to the aviation sector but some airlines did not use it wisely. Government should be in charge of policies, regulations and consistency.
“If the foreign exchange is N400, airline operators should plan with it and increase ticket fares. Those that can afford it will fly, those that will go by road, wills go by road and those that will take train will have to take train. But this issue of government giving airlines intervention fund all the time is no longer going to work,” Jemide added.
In the opinion of Sonnie Ayere, Chief Executive Officer, Dunn Loren Merrifield, infrastructure was still a critical factor to Nigeria’s economic growth – only if channeled to the right direction would it attract Foreign Direct Investment.
He said, “The fact that the country still lacks infrastructure to produce, leaves us at the mercy of a volatile exchange rate. Imagine the cost savings to our economy in terms of foreign exchange, if we do not have to import half the items we currently import, by producing these here in Nigeria,” Ayere asked rhetorically.
The event, which is in its sixth (6th) edition was attended by key players in financial services, business executives and a handful of business lawyers. Participants noted sectors mostly affected by Forex to include, aviation, manufacturing, oil and gas and financial services. They urged government to implement consistent policies that will ensure businesses (particularly those driven by Forex) stay alive.
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